Glaxo banking on Advair longevity

Chief executives can frequently be heard expressing confidence in the infallibility of products in the face of patent challenges and normally these sentiments can be taken with a pinch of salt. However, comments from GlaxoSmithKline’s Andrew Witty, that he sees little threat of generic competition to the company’s $8bn dollar asthma and COPD franchise Advair, despite certain patents expiring next year, cannot be put down to hyperbole.

In normal circumstances a product of this size – Advair is forecast to remain the world’s third biggest selling drug until 2012 – would have had numerous generics firms circling for years. But a number of factors, including the complexity of the delivery device and a very tough and largely uncharted regulatory pathway, means this market is unlikely to succumb to swift generic erosion after patents expire. As such, few financial analysts are forecasting a hit to sales from cheap copycats. They could well be right, but with Advair's value equivalent to a massive 18% of Glaxo's share price, any nasty surprises will have a big impact.

EvaluatePharma's NPV Analyzer: GlaxoSmithKline summary
Status Product Therapeutic category Patent Expiry WW sales in 2014 ($m) Today's NPV ($m) NPV as % of Share Price
 Top 5 marketed products  Seretide/Advair  Other bronchodilators  Sep 2011  6,466  20,101  18%
 Hepatitis Vaccine Franchise  Vaccines  -  1,307  5,087  4%
 Tykerb  Other cytostatics  Sep 2020  1,001  3,703  3%
 Augmentin IR  Anti-bacterials  Jul 2002  860  3,298  3%
 Cervarix  Vaccines  Oct 2017  1,236  3,164  3%
 Total Marketed  29,621  87,240
 Total Pipeline  2,783  11,492
Total Product NPV 32,403 98,732

Mr Witty, speaking at the JP Morgan conference this week, said Glaxo is working on the basis of a substantial Advair business for the foreseeable future. He pointed to the difficulties in bringing a generic product to the market, although concurred that there were certainly parties out there capable of doing so.

Analysts appear to support this view. Despite the US patent protecting the combination of fluticasone and salmeterol, the component parts of Advair, expiring in 2011 and in Europe in 2013, sales are not forecast to decline substantially over the next four years.

Sales are forecast to peak in 2011 at $8.37bn then decline gradually, hitting $6.47bn by 2014, according to consensus from EvaluatePharma. This might look like mild generic erosion but is actually explained by anticipated competition from AstraZeneca’s Symbicort, which was only launched in the US in 2007, and other, newer respiratory compounds entering the market.

Tough pathway

A number of factors support this robust view of Advair, and the inhaled respiratory space more widely.

Firstly, inhalation devices are very complex to design and manufacture, and the process of convincing regulators that they are reliable and deliver even and predictable doses of a drug is incredibly tough, for both branded and generic companies.

The devices already on the market such as Glaxo’s Diskus inhaler are protected by a huge suite of patents, to the extent that as far as is known, companies attempting to enter this market generically have developed their own device.

This throws up another problem, as regulators will require generic manufacturers to prove that the device delivers the drug to the lung in exactly the same way as the original device. The FDA has yet to deliver guidance on how to determine bioequivalence for inhaled products, and although this is under review it is not known how long it will take.

In recent years, the FDA’s pulmonary division has proven itself very hard to please, so if a company chooses not to pursue a generics route to market, the road is still likely to be long and arduous.

For example Britain’s SkyePharma filed its combination of fluticasone, the bronchodilator component of Advair, and formoterol, Novartis’ inhaled corticosteroid that went off patent in 2006, in the US in March last year. The FDA has already come back with a request for further data, and the company does not believe approval will be granted before 2012.

Heavy-weight competitor

The biggest threat to Advair is likely to come from Novartis’ Sandoz division, which is developing a generic version known as VR315. Details on its progress are thin on the ground which could possibly explain why analysts are reluctant to change their Advair models yet, but it is likely the product has entered phase III trials already. Analysts at Citi have written that a US filing could be made in the first half of this year, although the basis of this claim is unknown.

Sandoz is investing heavily in its generic respiratory franchise; a version of AstraZeneca’s Symbicort is also under development and the firm announced a $50m investment in a manufacturing facility in 2008.

Even with this heavy weight and experienced name looking to get in on the action, consensus has actually risen over the last 12 months for Advair sales, underlying how tough the market believes it will be for Sandoz to be successful.

Of course, this prolonged and unpredictable path to market for generic respiratory drugs is not limited to Advair. As the table below shows, the overall market for asthma and COPD products is set to continue growing until 2011 when it will peak at around $31bn. Thereafter the sector will experience modest declines, despite the fact that of the top ten selling products in 2009, seven have already lost or will lose patent protection by the end of 2014.

Total market for anti-asthma & COPD products (EphMRA code: R3)
Year 2000 2004 2008 2009 2010 2011 2012 2013 2014
 Total Sales ($bn)  9.4  16.8  27.9  28.3  30.1  31.0  29.9  27.8  26.6
 annual change %  2%  6%  3%  -4%  -7%  -4%

With generic versions of inhalation-based products struggling to gain either regulatory approval or traction in the market, Merck & Co’s oral asthma drug Singulair, which loses patent protection in August 2012, is the only one expected to suffer from classically aggressive generic erosion; US sales of Singulair are expected to peak at $3.29bn in 2011, but crash to just $93m by 2014.

Mr Witty and analysts are no doubt correct to be assuming Advair is well protected. But it does mean if the wind starts to blow in the opposite direction, the company has a lot to lose. Even a company the size of Glaxo will feel it if these numbers start heading south.

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